Updated 3/10/2015 – Additional Guidance from the IRS
The IRS recently released Notice 2015-17, which addresses and clarifies important issues regarding premium reimbursement arrangements, including but not limited to, wage increases in lieu of health coverage, treatment of employer payment plans as pre or post-tax compensation, reimbursement arrangements for Medicare or TRICARE premiums, and transition relief for employers with fewer than 50 full-time employees.
What practices are prohibited by the new ACA regulations? Stand-alone Reimbursement Arrangements practices and “Marketplace Dumping” have been deemed out of compliance by new ACA regulations. The DOL and IRS have explicitly prohibited these two practices:
- Stand-alone Reimbursement Arrangements – Employers are not allowed to offer employees an HRA without accompanying it with a group health insurance plan.
- “Marketplace Dumping” – Employers are also not allowed to offer high-claims-risk employees incentives to waive group health coverage so they purchase individual insurance through the Marketplace exchange.
What do I need to do? These prohibitions are effective immediately, so make sure that these practices are not being followed by your company.
The DOL and IRS have explicitly prohibited two practices that some employers may have been using: standalone HRAs and “marketplace dumping.” Both of these practices are explained in further detail below.
Reimbursement Arrangements Prohibited
Some employers subject to the Play or Pay mandate have established HRAs to reimburse employees for the cost of individual insurance instead of offering group health insurance. Although employers practicing this “alternative method” would still be subject to an “A Penalty” of $2,000 per full-time employee, they would still save on premium subsidies and administrative costs.
However, the DOL and IRS have addressed this idea and concluded that HRAs not integrated with a group health plan or employer payment plan violate the ACA. Under the ACA, all health plans must not have an annual dollar limit for essential health benefits and must provide preventive care services with no cost-sharing. HRAs are classified as group health plans and are therefore subject to the aforementioned requirements.
However, HRAs by themselves are limited to the dollars within the account and do not always provide preventive care services without cost-sharing. Therefore, in order for an HRA to comply with the ACA, it must be integrated with a group health plan that meets ACA standards.
Employers may not offer stand-alone HRAs as a substitute for group health coverage. Additionally, stand-alone HRAs cannot be integrated with individual market coverage purchased using the HRA.
Employers who are implementing premium reimbursement strategies should immediately stop and consider consulting with qualified counsel as to whether they might be able to recoup costs incurred.
“Marketplace Dumping” Violates HIPAA Nondiscrimination Rules
Another practice that has arisen among employers is providing cash incentives to claimants with a high claims risk to drop employer coverage and instead, obtain individual insurance on the Marketplace. However, this practice violates HIPAA’s nondiscrimination rules in two ways.
- First, if an employee with a high claims risk chooses to remain enrolled in group coverage, in addition to paying his/her premium contribution, the employee is essentially also paying the forfeited cash incentive. This means that the individual with a high claims risk effectively pays a higher premium than those without the adverse health factor, who would only be paying the premium contribution. Since the high-claims-risk employee must effectively contribute more to participate in the group health plan, the arrangement violates the HIPAA rule against discrimination based on a health factor.
- Second, providing cash incentives to high-claims-risk employees discourages enrollment in group health plans and differentiates based on a health factor that is outside the scope of the DOL’s regulations on benign discrimination. Benign discrimination is discrimination that helps individuals with adverse health factors to participate in health coverage. Therefore, this practice violates HIPAA nondiscrimination rules in this form as well.
Please note: it is still permissible for employers to provide waiver credits to employees for waiving group health coverage. However, employers may not direct how and where the employee will be spending the waiver credit. Employers must also be mindful that they do not provide excessively large waiver credits to employees such that the employee would be incentivized to waive group health coverage and obtain individual health coverage in the Marketplace.
Reject any proposals and/or cease current practices, if any, that identify high-cost claimants and incentivize them to move to the individual Marketplace.
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